Financial shares, including those of UBS, reacted positively this morning
to the news. Which of course, leads all to wonder: is it time to buy financials
yet?

Of course the big concern looming over financial companies and their shares
is exposure to subprime mortgages and the illiquidity
of assets in SIVs.

And in case you still thought the subprime problem was well "contained", you
obviously haven't been with us here on Earth these past few months.

As FT Alphaville and Bloomberg point out, even
the bond insurers are suspect. Monoline insurer MBIA
is now facing scrutiny over its AAA rating as the company faces problems
over the subprime CDOs it backs. This in turn spells trouble for all the
AAA ratings of the bonds it insures, which could also mean trouble for investors
in municipal bonds.

And as we've seen in recent weeks, these concerns are weighing heavily over
the shares of Fannie
Mae and Freddie Mac. Recent losses at Freddie and Fannie has increased
worry over the state of the GSEs' balance sheets.

So where's the bright spot? Ah, but that's where the value investors come
in. You've heard the bear case for financials and GSEs Freddie and Fannie (for
a refresher, see the link above). Now get ready for the bull case.

Tilson highlighted some of these investment ideas in a recent FT column, starting
with a buy analysis on shares of Freddie Mac.

On the long side, Rich Pzena of Pzena Investment Management shared his analysis
of Freddie Mac, which he prefaced with this emphatic statement: "I'd go so
far as to say that Freddie Mac is the single cheapest stock I've seen in my
career." (On the day before his presentation, Freddie Mac shares traded at
just under $26.) Given his highly successful career, that is saying something.

Pzena's argument is twofold: first, Freddie Mac's earnings are likely to be
much higher going forward. That is because the prices it is paying for mortgages
that it will package into securities have improved markedly, thanks to mortgage
sector distress.

It should be noted that not all present at the VIC were bullish on financial
shares. Tilson mentions two investors who shared their short ideas. Bill Ackman
of Pershing Square Capital gave a thorough presentation on likely future problems
at MBIA and Ambac, while David Einhorn at Greenlight Capital was wary of future
losses at Lehman Brothers.

So now that you've heard the bull and bear case for several leading financial
stocks, this leaves us with only one important question (as heard on Bloomberg
TV this morning): "What should the Fed do tomorrow?".